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Orange County cities have seen required annual payments to CalPERS spike some 16 percent since 2013. And those bills will keep climbing until 2020 or so, and stay there.
But that’s not causing the pain one might expect – at least, not yet. City tax revenues are climbing nearly as quickly as pension costs – and well exceeding them in some places. That’s softening the bite.
With another controversial initiative floating around that could dramatically scale back pensions for California’s public workers, the Register examined the “bite” pension payments take vis-a-vis city general funds, which pay for most citizen services. We found that:
• O.C. cities and workers paid $261.8 million into the California Public Employees’ Retirement System in the 2013 fiscal year, equal to 12.2 percent of general fund budgets.
• Those pension costs are projected to jump to $302.4 million this fiscal year, equal to 12.7 percent of general fund budgets.
Yes, that’s a lot more money going out for pensions. But a lot more money is coming in, too – which might undercut urgent calls to revamp the system.
“A number of things could happen to affect which direction things go in,” said Jack Dean, editor of pensiontsunami.com, and an advocate of major reform.
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“If they’re successful at extending the Proposition 30 sales tax at the state level, that will mask these liabilities. And at the city level, the same thing can very well happen: Property values are going up, and there’s a record amount of taxes coming in because of the rebounding real estate market.”
So pension increases can seem mostly painless until the next economic downturn, when revenues dive but pension costs remain high, Dean said.
There will be a reality check in 2016. Not simply because reformers hope to place an initiative on the ballot that could eliminate guaranteed pension payouts for California’s public workers, but because new accounting rules swing into action, forcing public agencies to add long-term pension debt to their official bottom lines.
Right now, those liabilities are just mentioned in financial footnotes. Next year, they’ll be subtracted from assets – and some $200 billion will instantly disappear.
“I think we’re going to see people experiencing sticker shock,” Dean said.
That $200 billion is what state and local governments owe for retirement benefits that workers have earned, but which the governments don’t have, according to figures from the state controller’s office. Combined, 33 Orange County cities have unfunded liabilities of $3.1 billion.
Labor, which strongly opposes attempts to revamp the pension system, says this is all a paper tiger.
The new accounting rules “do not change the amount that must be paid and represent only accounting adjustments,” said Dave Low, chairman of Californians for Retirement Security, a coalition of public employee unions. “There is no cash impact nor is there any negative impact on the budget.
“The fact is, every cost in every budget tends to grow over time, including utilities, rent, compensation and benefits,” said Low.
“Retirement benefit costs are projected to increase in the short term, flatten out, and in about 15 years are projected to decrease. This pattern, which mirrors the past 30 years, is part of the long-term funding nature of retirement benefits.”
Nearly half the cities in Orange County devote at least one of every 10 general fund dollars to pension costs, the Register found.
Older, “full-service” cities bear the heaviest burdens. These cities have their own police and fire departments – or at least, had them until recently – and some gave lifeguards the same retirement benefits as police and firefighters until recent reforms. For instance:
• Anaheim, the county’s largest city, faces a pension tab of $56.2 million this fiscal year – equivalent to nearly 20 percent of its general fund. But no sweat: While the total dollar amount due to CalPERS is up
9 percent from 2013, Anaheim’s general fund is up 21 percent, and the special funds that bear some of its pension burden are doing swimmingly, too.
“We’re holding up really well,” said Debbie Moreno, Anaheim finance director.
• Garden Grove, Orange and Fullerton are slated to pay what amounts to 18 percent of their general funds for pensions this year. The squeeze is tighter in these cities, with pension costs up 16 to 22 percent, while general funds have increased less than 10 percent.
Other cities that have seen pension increases grow faster than general fund revenues include Brea, Buena Park, Costa Mesa, Huntington Beach, La Habra, La Palma, Laguna Beach, Los Alamitos, Placentia, Seal Beach, Westminster and Yorba Linda.
The lightest loads are enjoyed by the newer cities and those that contract out for public safety and other services, and thus have far fewer employees on the books than the grandes dames.
Those spending the equivalent of 4 percent or less of their general funds on pension costs include Laguna Woods, Laguna Niguel, Laguna Hills, Dana Point, Aliso Viejo, Mission Viejo, Lake Forest, Stanton, Villa Park and Rancho Santa Margarita.
Rancho Santa Margarita has actually logged an enormous drop in CalPERS payments since 2013, down more than 20 percent.
How? Nearly half its staff has turned over since reforms ushered in lower retirement formulas and higher worker contributions – something that’s not quite so remarkable when there are only 22 people on staff.
“This has had the impact of reducing our payments,” said City Manager Jennifer Cervantez.
Agencies have been wrestling to get these costs under control for years. New hires have more circumspect benefits than veteran workers; veterans are paying more into the pension system; and a few cities are actually slapping down more cash than CalPERS requires to pay off unfunded liabilities early, and thus save millions down the line.
A reform initiative aiming for the 2016 ballot argues that more is needed. The extra money spent on pensions is money that’s not available for services for regular citizens.
Supporters say the Chuck Reed/Carl DeMaio initiative would simply put guaranteed pension payout programs to a public vote, while opponents say it will eliminate guaranteed pensions and destroy protections for public workers.
From the city manager’s desk, the firestorm brewing over the measure will serve to bring more awareness to the voters, which can only be a good thing, said Newport Beach City Manager Dave Kiff.
But other reforms still are needed, he said, as many agencies aren’t out of the woods yet. What he’d like to see: More ways for employers to reward workers with dollars that don’t increase retirement burdens – the so-called PERS-able pay.
“I would love to have more flexibility there,” Kiff said.
On the numbers
For this analysis, the Register used general fund numbers from city budget documents and total required employer contributions from CalPERS' Public Agency Actuarial Valuation Reports.
The 2015-16 CalPERS numbers are projected, as per its most recent valuations. Updated numbers will be released in October.
Several cities, including Newport Beach, Laguna Beach, Huntington Beach and Irvine, are paying more than CalPERS' projected requirements for 2015-16 in an effort to pay down unfunded liabilities. Those extra payments do not show in the CalPERS requirement figures.
Most pension costs are paid from city general funds, but some may be paid from special funds. The CalPERS totals encompass all workers from all funds.
Anaheim is one of the few cities with a sizable special fund – its public power utility. It is also one of the few cities that has started breaking out pension costs per fund. Of the $53.1 million CalPERS required in 2013, Anaheim's general fund bore $33.5 million; of the $56.2 million required for 2016, its general fund will bear $32.6 million. The general fund's burden is projected to rise to $47.5 million in 2020, according to city budget documents.
WHAT O.C. CITIES OWE TO CalPERS